Chinese Banks Suspend Innovation Forays Following Regulatory Crackdown

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A new report indicates that many Chinese banks have become reluctant to engage in new or innovative operations just a month following a crackdown unleashed by regulators.

Since becoming head of the China Banking Regulatory Commission in February, Guo Shuqing has launched a regulatory crackdown of unprecedented intensity for Chinese banks, issuing a total of 7 directives within the space of just two weeks in March as well as a slew of penalties to misbehaving lenders.

A new report from Fangzheng Securities macro-economics analyst Yang Weixiao indicates that the CBRC crackdown has left many banks to busy scrutinising their own operations for regulatory risk to engage in any new or innovative operations.

His “Summary of Research into Beijing Banks Under Strong Regulation” (强监管下北京地区银行调研纪要) indicates that lenders in the Chinese capital have essentially suspended all new operations due to their fretfulness while under such intense regulatory scrutiny.

The report notes that CBRC launched a concentrated issuance of new regulatory directives at the end of March, releasing a total of 7 in the space of two weeks that demanded the “eradication of illegal and non-compliant conduct and market chaos in the banking sector.

In tandem with this onslaught of regulatory directives, CBRC also took more concrete measures against misbehaving banks by hitting them with heavy fines, imposing a total of 25 administrative penalties on 29 March alone.

CBRC recently announced that it issues a total of 485 administrative penalties in the first quarter of 2017 worth a total of 190 million yuan, as well as imposed penalties on 197 individuals, cancelling the qualifications of 19 senior executives and prohibiting 11 from working in the banking sector.

Yang Weixiao’s report indicates that the crackdown has had the ancillary effect of suspending new or innovative operations by banks, due to concerns about the risk problems they could create amidst such heightened scrutiny.

Outsourced lending unaffected

Local media previously reported that the CBRC crackdown had compelled many Chinese banks to withdraw en masse from their “outsourced investments” in ETF’s.

One industry insider speaking to The Beijing News pointed out, however, that the recent wave of redemptions was par for the course in the sector, and that there has been industrywide pullback from outsourced investments.

In his opinion while some joint-stock, municipal and agricultural banks may have redeemed their outsourced holdings, the percentages are comparatively small, and many are staggered redemptions based on varying maturations.

 

 

 

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